When it comes to personal finances and money management, you need to better understand credit score, what it means and how it affects your financial record and health.
Your credit score makes a difference in the interest you might pay to a lender and can even be the final say in whether you’re able to get a loan or not.
Lenders use your credit score to determine if they should lend you money and also use it to judge your capability of paying back borrowed money.
How It Works
Credit scores range between 300 and 850, through the FICO system, which is the standard system used. Your credit score number and what it represents goes like this:
800-850: Excellent score.
With no blemishes on your credit score, this number shows you’re highly responsible for managing borrowed money and can qualify you for the lowest interest rate.
740-799: Very good score.
This shows most of your money and credit management are in high order. Your bill and credit card payments are typically on time.
670-730: Good score.
This is slightly near the average of US consumers. You can get a good interest rate on a loan, but you might not qualify for certain loans.
580-699 Fair score.
You can still find loans because despite a relatively low score. You might not have major wrongdoings.
Under 580- Poor score.
This could happen because you defaulted on credit several times before with different lenders. Or it could be the result of declaring bankruptcy.
You might not have yet developed a credit history or score yet. Here, you would need to talk to a lender and see what your options are.
Now that you know a bit more about credit scores, you can always want to try to keep your score as high as possible. It could take several weeks before you find an improvement, showing up on your credit score record.
There are no quick fixes to a credit score; it needs time and discipline and a strategy.
Yet with this useful advice, you can improve your score and keep it climbing.
Breakdown Your Score
Different factors affect your score. The three main aspects that affect credit is utilization, derogatory marks, and payment history.
Utilization is how much you use compared to how much limit you have. So if you spend $100 on a card of $1000, then you’ve utilized 10%. When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization.
Derogatory marks from 0% to 9% are considered excellent.
Derogatory marks are defaults in debts you have not paid. Payment history is paying bills on time, and such. Understanding your weak point(s) will help you focus on the solution to solve the problem you’re having.
Pay Bills on Time
This is the biggest factor affecting your score, accounting for 35% of it according to FICO. Being even just a couple of days late on a payment can affect your score. When you show a recent good pattern of payment, it will eventually show up in your record and turn it around.
There are several lenders and credit card repair companies around. You would want to review repair companies and make a finance comparison of the most useful lenders and repair companies in the industry.
For instance, to keep up with bill payments, you could consider registering in automatic payments through your credit card and loan providers so that payments are automatically withdrawn from your bank account at due dates to avoid late payments.
Search for Errors
There are three main credit bureaus and you are entitled to a yearly free report from any of them. An error or more might be the cause of bringing your score down, and you need to report errors if found and can dispute them with a named bureau.
Keep Credit Cards Open
Closing a credit card account can actually make the problem even worse. The length of your credit history accounts for 15% of your score. The older your card is with a positive history, the more loaners trust you.
Unused credit cards can boost your score. Keep the card open and use it occasionally so the issuer won’t close it. As an account ages, and you maintain bill payments on time, you’re likely to see a higher score.
Small changes can make big improvements in your credit score. None of these solutions mentioned will cost you a cent. Your financial health is in your hands.
The better credit you have as a borrower, the more choices you can have to get a possible lower interest rate in loans if you need one.